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China Sold Second-Biggest Amount of Japanese Debt on Record

Dec. 8 (Bloomberg) -- China sold the second-biggest net amount of Japanese debt on record as the yen headed for a postwar high against the dollar and benchmark yields approached their lowest levels in a year.

The world’s largest holder of foreign-exchange reserves cut Japanese debt by 853 billion yen ($11 billion) in October, Japan’s Ministry of Finance said in a statement today. China sold a net 2.02 trillion yen of Japanese debt in August 2010, a record based on MOF data going back to January 2005.

“China may have sold to profit from the currency,” said Ayako Sera, a market strategist in Tokyo at Sumitomo Trust & Banking Co., which manages the equivalent of $298 billion. “Japanese debt isn’t attractive in terms of yields.”

Japan’s 10-year yields have dropped 12.5 basis points since the start of this year to 1.04 percent as of 11:05 a.m. Tokyo time, and are about one percentage point below rates on U.S. Treasuries with a similar maturity. Japan’s yields declined to 0.94 percent on Nov. 17, the lowest level since Nov. 8, 2010.

The yen surged to a postwar record of 75.35 per dollar on Oct. 31 and was at 77.68 today. The currency underperformed all of its 16 major counterparts in October.

China sold a net 391.6 billion yen in Japanese bonds and notes in October, while it cut holdings of money-market securities by 461.4 billion yen, today’s MOF data showed.

China’s foreign reserves stood at $3.2 trillion at the end of September, down from a record $3.26 trillion the previous month, according to the latest available data. Li Yang, a former adviser to the nation’s central bank, said on Dec. 7 that reserves continued to fall through this month.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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